Norbord reports 2007 year-end results



    Note: Financial references in US dollars unless otherwise indicated

    
    2007 HIGHLIGHTS

    -   Generated EBITDA of $81 million from European business
    -   Ramped up new OSB line at Cordele, Georgia to full capacity
    -   Exported 25% of OSB volume from Quebec mills to Europe
    -   Re-certified three OSB mills as OSHA VPP-Star safety sites
    -   Arranged $100 million unsecured term debt facility subsequent to
        year-end
    -   Finalized a $50 million accounts receivable securitization; Increased
        bank lines by $35 million
    

    TORONTO, Feb. 1 /CNW/ - Norbord Inc. (TSX:NBD) today reported 2007 EBITDA
of $42 million due largely to the strong performance of mills located in
Europe.
    Record European results helped offset the soft market conditions
experienced in North America. In the fourth quarter, Norbord recorded a loss
of $13 million or $0.09 per share compared to a loss of $1 million in both the
prior quarter and the same period last year. For the full year, Norbord posted
a loss of $45 million or $0.31 per share.
    "In this difficult market for our North American production, Norbord's
operations performed well in 2007," said Barrie Shineton, President and CEO.
"Our European facilities provided important geographic diversification,
delivering EBITDA of $81 million for the full year."
    "In North America, weak demand stemming from sharply lower housing starts
led to poor product prices and widespread curtailments throughout the wood
products industry. Norbord's low cost position provided important operational
flexibility and allowed us to minimize downtime throughout the year. Our
ability to produce and sell record North American OSB volumes in this
environment continued to validate the Company's customer strategy."

    Norbord Appoints Chief Financial Officer

    In a separate news release, Norbord announced today that Robin Lampard
has been appointed Senior Vice President and Chief Financial Officer,
effective February 15, 2008. Ms. Lampard has been with Norbord since 1996 and
most recently held the role of Vice President, Treasurer.
    Ms. Lampard replaces John Tremayne who will step down on February 15,
2008. "John played a vital role in re-shaping Norbord over the past six
years," said Mr. Shineton. "I thank him for his contributions to the company
and we wish him well."

    Norbord Completes $100 million Unsecured Term Debt Facility

    On January 31, 2008, Norbord concluded a $100 million unsecured term debt
facility with its major shareholder. This facility provides the Company with
significant additional liquidity. When added to cash on hand and unused bank
lines, Norbord now has access to $421 million of liquidity, of which
$197 million is earmarked for the upcoming March 2008 debenture maturity.

    Market Conditions

    US housing starts were 1.35 million in 2007, well below the 1.81 million
level experienced in 2006.
    For the full year, North Central OSB prices averaged $161 compared to
$217 in 2006. In the South East region, where 55% of Norbord's North American
capacity is located, OSB prices averaged $143 for the full year.
    The North Central OSB benchmark price averaged $165 in the fourth
quarter, down $12 from last quarter. In the South East region, OSB prices
averaged $132 in the fourth quarter, down $17 from the prior quarter. Lower
OSB prices were due to weak US housing starts, the standard seasonal slowdown
in order files and excess OSB production capacity. As a result, many producers
took market-related downtime in the quarter, including Norbord.
    European markets were exceptionally robust in 2007. For the full year,
strong product demand and limited supply resulted in average realized price
increases of almost 20% for OSB and MDF and more than 10% for particleboard.
    In the fourth quarter, European OSB prices softened relative to the third
quarter as supply and demand moved back into balance and the North American
credit crisis began to impact European markets.

    Performance

    Ramp up of the new OSB line at Cordele was completed in 2007. The new
line averaged 80% of its annual production design capacity during its first
year of start up and reached 100% of design capacity by December. Production
from the new line at Cordele led to a 6% increase in Norbord's OSB production
in 2007.
    Norbord's North American per unit OSB production cost increased 3% over
the prior quarter principally due to seasonally higher wood costs and the
negative impact of market-related downtime taken during the quarter. For the
full year, North American OSB production costs were up 3% over the prior year
as increased resin and wax prices more than offset the benefit of increased
productivity and improved raw material usage.
    Norbord completed the installation of the heat energy system at
Nacogdoches, Texas during the quarter. Annual gas savings are expected to
exceed $2 million. The energy system at Nacogdoches and the new energy system
at Genk, Belgium, completed in the third quarter, were the final projects in
Norbord's program to convert all OSB process heat from natural gas to biomass.
    Throughout the year, Norbord exported approximately 25% of the OSB volume
from its mills in Quebec to Europe. Norbord's export program served to meet
the strong demand from its European customers and provided a timely outlet for
the Quebec production. The company will re-evaluate its commitment to the
export program in 2008 as a result of the recent return to more normalized
prices in Europe.
    In North America, Norbord took a total of 118 days of OSB downtime during
the quarter and 181 days of OSB downtime for the full year. Norbord will
continue its practice of monitoring the financial performance of each mill and
will suspend operations when operating losses exceed shutdown costs. As the
company does not consider temporary curtailments material in the current
market environment, temporary shutdowns will be summarized at the end of each
quarter rather than disclosed as they happen.
    Capital investments totaled $7 million in the quarter and $36 million for
the full year. Norbord's net debt to total capitalization was 30% on a market
basis and 60% on a book basis at year-end.

    Quarterly Dividend

    The Board of Directors declared a quarterly dividend of CAD$0.10 per
common share, payable on March 21, 2008 to shareholders of record on March 1,
2008.

    Conference Call

    Norbord will hold a conference call for investors on Friday, February 1,
2008 at 11:00 a.m. ET. The call will be broadcast live over the Internet via
www.norbord.com and www.newswire.ca. A replay will be available one hour
following the call until March 1, 2008 by dialing 647.436.0148 or
888.203.1112. The passcode is 7313294. Audio playback will be available on the
Norbord website.

    Norbord Profile

    Norbord Inc. is an international producer of wood-based panels with
assets of $1.3 billion, employing approximately 2,700 people at 15 plant
locations in the United States, Europe and Canada. Norbord is one of the
world's largest producers of oriented strand board (OSB). In addition to OSB,
Norbord manufactures particleboard, medium density fibreboard (MDF), hardwood
plywood and related value-added products. Norbord is a publicly traded company
listed on the Toronto Stock Exchange under the symbol NBD.

    This news release and attached Shareholders Letter contain
forward-looking statements, as defined in applicable legislation. The words
"will," and other expressions which are predictions of or indicate future
events, trends or prospects and which do not relate to historical matters
identify forward-looking statements. Forward-looking statements involve known
and unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of Norbord to be materially different
from any future results, performance or achievements expressed or implied by
the forward-looking statements.
    Although Norbord believes it has a reasonable basis for making these
forward-looking statements, readers are cautioned not to place undue reliance
on such forward-looking information. By its nature, forward-looking
information involves numerous assumptions, inherent risks and uncertainties,
both general and specific, which contribute to the possibility that the
predictions, forecasts and other forward-looking statements will not occur.
Factors that could cause actual results to differ materially from those
contemplated or implied by forward-looking statements include: general
economic conditions; risks inherent with product concentration; effects of
competition and product pricing pressures; risks inherent with customer
dependence; effects of variations in the price and availability of
manufacturing inputs; risks inherent with a capital intensive industry; and
other risks and factors described from time to time in filings with Canadian
securities regulatory authorities and the US Securities and Exchange
Commission.
    Except as required by applicable laws, Norbord does not undertake to
update any forward-looking statements, whether as a result of new information,
future events or otherwise, or to publicly update or revise the above list of
factors affecting this information. See the "Caution Regarding Forward-Looking
Information" statement in the March 1, 2007 Annual Information Form and the
cautionary statement contained in the "Forward-Looking Statements" section of
the 2006 Management's Discussion and Analysis dated January 31, 2007.

    
                     MANAGEMENT'S DISCUSSION AND ANALYSIS
                             FOURTH QUARTER 2007
    

    January 31, 2008

    The Management's Discussion and Analysis (MD&A) provides a review of the
significant developments that impacted Norbord's performance during the
period. Norbord's significant accounting policies and other financial
disclosures are contained in the audited annual financial statements and
accompanying notes. All financial references in the MD&A are stated in US
dollars unless otherwise noted.
    Some of the statements included or incorporated by reference in this MD&A
constitute forward-looking statements within the meaning of applicable
legislation. Forward-looking statements are based on various assumptions and
are subject to various risks. See the cautionary statement contained in the
Forward-Looking Statements section in this MD&A.
    EBITDA, EBITDA margin, operating working capital, total working capital,
capital employed, ROCE, ROE, net debt, net debt to capitalization, book basis
and net debt to capitalization, market basis are non-GAAP financial measures
described in the Non-GAAP Financial Measures section. Non-GAAP financial
measures do not have any standardized meaning prescribed by Canadian Generally
Accepted Accounting Principles (GAAP) and are therefore unlikely to be
comparable to similar measures presented by other companies. Where
appropriate, a quantitative reconciliation of the non-GAAP financial measure
to the most directly comparable GAAP measure is also provided.
    In 2007, Norbord Inc. ceased voluntarily filing certain reports with the
US Securities and Exchange Commission. Additional information on Norbord,
including documents publicly filed by the Company, is available on the
Company's website at www.norbord.com or the System for Electronic Document
Analysis and Retrieval (SEDAR) at www.sedar.com.

    Business Overview and Strategy

    Norbord is an international producer of wood-based panels with 15 plant
locations in the United States, Europe and Canada. It is one of the world's
largest producers of oriented strand board (OSB) with annual capacity of
5.0 billion square feet (3/8-inch basis). The core of Norbord's OSB business
is located in the South East region of the United States. The Company is a
significant producer of wood-based panels in Europe. The geographical
breakdown of panel production capacity is 60% US, 27% Europe and 13% Canada.
    Norbord's business strategy is focused entirely on the wood panels sector
- in particular OSB - in North America and Europe.
    Norbord's financial goal is to achieve top quartile return on equity
(ROE) and cash return on capital employed (ROCE) among North American forest
products companies. Norbord believes that it has met this target in four of
the past five years.
    Maintaining a strong balance sheet is an important element of Norbord's
financing strategy. Norbord believes that its record of superior operational
performance and prudent balance sheet management should enable it to access
public and private capital markets on attractive terms. At the end of the
quarter, the Company believes that it was well positioned with a net debt to
capitalization of 30% on a market basis and 60% on a book basis.

    Summary

    Norbord's strategy of geographic diversification was validated in 2007 as
markets for Norbord's European and North American products continued to move
in different directions. European markets were exceptionally robust in 2007,
especially during the first three quarters of the year. In contrast, North
American markets remained challenging. North American OSB prices have
retreated from the highs of recent years, reflecting the sharp decline in US
housing starts. Fluctuation in North American OSB price is the most
significant variable affecting Norbord's results.
    In the quarter, Norbord recorded EBITDA of negative $9 million, versus
positive $30 million in the previous quarter and positive $22 million in the
fourth quarter of 2006. For the full year, $42 million of EBITDA was
generated, versus $247 million in the prior year. Notable in this result is
the contribution from European operations. In 2007, European operations
contributed EBITDA of $81 million, up from $35 million in 2006.
    The Company recorded a loss of $13 million in the fourth quarter of 2007
or $0.09 per share compared to a loss of $1 million or $0.00 per share in the
third quarter of 2007. Softer earnings in the quarter were due to lower OSB
prices in North America and Europe.
    Net sales in the quarter were $263 million, compared to $292 million and
$259 million in the third quarter of 2007 and fourth quarter of 2006
respectively. Full year 2007 net sales were $1,104 million compared to
$1,252 million in 2006. Higher European net sales in 2007 resulting from
higher pricing and shipment volumes, was offset by lower net sales in North
America. In North America, the benefit on net sales of higher OSB shipment
volumes was more than offset by lower North American OSB prices.
    Demand and pricing for North American OSB is expected to remain weak in
the near term. However, the long term fundamentals supporting North American
housing and OSB demand are forecast to be strong. Management continues to
believe that OSB will remain one of the best growth products in the forest
products industry.

    
    Results of Operations

    (US$ millions, except per
     share information, unless   4th Qtr  3rd Qtr  4th Qtr   12 mos   12 mos
     otherwise noted)               2007     2007     2006     2007     2006
    -------------------------------------------------------------------------

    Return on capital employed
     (ROCE)                          (3)%      11%       8%       4%      25%
    Return on equity (ROE)          (14)%     (1)%      (1)%    (11)%     20%
    Earnings per share -
     diluted                     $ (0.09) $  0.00  $ (0.01) $ (0.31) $  0.67
    -------------------------------------------------------------------------

    Net sales                    $   263  $   292  $   259  $ 1,104  $ 1,252
    EBITDA                            (9)      30       22       42      247
    EBITDA margin                     (3)%     10%       9%       4%      20%
    Depreciation                      18       19       24       88       94
    Investment in property,
     plant and equipment               7        8       44       36      160
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Shipments (MMsf 3/8")
    OSB                            1,130    1,060    1,083    4,463    4,289
    Particleboard(1)                 128      162      158      631      643
    MDF                              113      124      112      494      525
    Hardwood plywood                  13       19       18       71       78
    -------------------------------------------------------------------------

    Indicative OSB Prices
    Average OSB price - North
     Central ($/Msf 7/16")           165      177      166      161      217
    Average OSB price - South
     East ($/Msf 7/16")              132      149      141      143      219
    Average OSB price - Europe
     (euro/m(3))                     234      246      219      240      208
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Excludes particleboard consumed internally (35 MMsf, 33 MMsf,
        37 MMsf, 138 MMsf, 178 MMsf for each period, respectively).
    

    European operations delivered record results in 2007 driven by an
exceptionally strong market. However, European OSB and particleboard markets
turned down in the fourth quarter as the expected seasonal slowdown was
compounded by a very cautious buying pattern from the customer base. Lower
order files resulted in an inventory build across the industry. European OSB
prices retreated by 5% relative to the third quarter while particleboard and
MDF prices held constant. For the full year 2007, Norbord's European panel
prices all posted double digit gains with average realized pricing for OSB and
MDF up almost 20% and particleboard up over 12%.
    The strong market conditions in Europe were partially offset by continued
pressures on fibre and resin prices. A number of initiatives have been
undertaken to address these cost pressures including the installation of
biomass heat energy systems at Genk, Belgium OSB and Cowie, Scotland MDF and
the 2006 restructuring of Cowie MDF and South Molton, England particleboard
and lamination. Norbord expects that these initiatives will result in higher
overall margin contribution from the European mills.
    Improved European results provide a timely contribution as North American
OSB prices have retreated from the highs of recent years. In 2007, North
Central benchmark North American OSB prices averaged $161 per Msf (7/16 - inch
basis) compared to $217 in 2006. The decline in North American OSB prices,
which began in the second quarter of 2006, is the result of lower housing
starts in the US. New home construction is the principal end use for OSB,
accounting for about 57% of demand in 2007. North American OSB prices have
also been impacted by an increase in low cost production capacity as a number
of new mills have come on stream. Relatively weak pricing levels are expected
to persist through 2008 as a result of weaker overall demand and the impact of
additional low cost capacity.
    In the quarter, North Central benchmark OSB prices averaged $165, down
$12 over the third quarter. In the South East region, where approximately 55%
of Norbord's North American capacity is located, prices averaged $132 in the
quarter, down $17 from the third quarter. The North American OSB oversupply
situation continued in the fourth quarter and most producers, Norbord
included, took market-related downtime.
    Throughout the cycle, Norbord took steps to prepare itself for this
cyclical downturn by focusing on cost containment and by focusing product mix
on higher margin products. The Margin Improvement Program (MIP) has helped
Norbord to concentrate on improving its competitive position, generating over
$165 million of savings in the past five years. These gains have helped to
offset the impact of industry-wide rising input costs and management believes
its relative competitive position has improved over this time. The benefit of
the discipline exercised through the top of the cycle is that Norbord produced
and sold record volumes of OSB in 2007; notable in a year when significant
curtailments were taken by the structural panel industry. Norbord generated
margin improvements of $9 million in 2007.
    Ramp up of the new OSB line at Cordele, Georgia was completed in 2007,
reaching 100% of design capacity by year end. Production on the new line in
2007, its first year, averaged almost 80% of design capacity. The expansion
project, completed in December 2006 at a cost of $135 million, increased
Norbord's global OSB capacity by 12% and should further strengthen Norbord's
position as one of the lowest cost OSB producers in North America.
    Three of Norbord's existing eleven OSB mills established annual
production records in 2007. Production from the new line at Cordele and
improvements delivered as a result of implementing best practices resulted in
a 6% production increase, despite market-related downtime taken at a number of
Norbord's mills in the fourth quarter. This follows a 4% increase in 2006 when
eight of eleven OSB mills set annual production records.
    In 2007 Norbord's OSB shipments were at record levels, a notable
achievement in light of current North American OSB market conditions and
continued validation of the Company's strategy to focus on customers who are
growing their own market share.
    In the quarter, Norbord's North American per unit OSB cash production
costs, including employee profit share, were up 3% over the prior quarter
principally due to seasonally higher wood price and the negative impact on per
unit costs of the market-related downtime taken late in the quarter.
Production costs were up 7% over the fourth quarter of 2006 due to higher key
input costs and the negative impact on per unit costs of the market-related
downtime. Full year 2007, production costs increased 3% over the prior year as
increased resin and wax prices more than offset the benefit of increased
productivity and improved raw material usages.
    Major components of the change in EBITDA versus comparative periods are
summarized in the following variance table.

    
                                    4th Qtr 2007  4th Qtr 2007   12 mos 2007
    EBITDA Variance                      vs.           vs.           vs.
    (US$ millions)                  3rd Qtr 2007  4th Qtr 2006   12 mos 2006
    -------------------------------------------------------------------------

    EBITDA - current period            $      (9)    $      (9)    $      42
    EBITDA - comparative period               30            22           247
    -------------------------------------------------------------------------
    Variance                           $     (39)    $     (31)    $    (205)
    -------------------------------------------------------------------------

    Mill nets(1)                       $     (11)    $       8     $    (171)
    Volume(2)                                (16)           (8)           15
    Key input prices(3)                       (8)           (4)          (16)
    Key input usage(3)                         -             -             1
    Other(4)                                  (4)          (27)          (34)
    -------------------------------------------------------------------------
                                       $     (39)    $     (31)    $    (205)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) The mill net variance represents the change in realized pricing
        across all products. Mill net is calculated as net sales divided by
        shipment volume.
    (2) The volume variance represents the impact of shipment volume changes
        across all products.
    (3) Key inputs include fibre, resin and energy.
    (4) Other category covers all remaining variances including, supplies and
        maintenance, labour and benefits, and the impact of foreign exchange.


    Interest, Depreciation and Income Tax

                                 4th Qtr  3rd Qtr  4th Qtr   12 mos   12 mos
    (US$ millions)                  2007     2007     2006     2007     2006
    -------------------------------------------------------------------------

    Interest and other income    $     1  $     -  $     -  $     5  $     3
    Interest expense                 (13)     (13)      (7)     (49)     (29)
    Depreciation                     (18)     (19)     (24)     (88)     (94)
    Income tax recovery (expense)     26        1       21       45      (17)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    


    Interest and other income was up $1 million over the prior quarter and
same quarter last year due to higher average cash balances in the quarter.
Interest expense of $13 million was in line with the prior quarter. Full year
2007 interest expense is higher than 2006 due to additional interest on
borrowings under the Company's committed bank lines and the February issuance
of $200 million of senior notes maturing in 2017. In addition, $7 million of
interest was capitalized in 2006 relating to the new OSB line at Cordele,
while only $3 million was capitalized in 2007.
    In accordance with the Company's policy, depreciation rates for property,
plant and equipment are assessed from time to time to ensure they continue to
approximate their useful life. Effective July 1, 2007, management's estimate
of the useful life for its OSB assets was changed from 15 years to 25 years.
This change in estimate was accounted for prospectively. The impact of this
change in estimate on third and fourth quarter depreciation was a reduction of
$9 million. Depreciation expense increased in the second quarter of 2007 by
$3 million as depreciation of the new OSB line at Cordele commenced in that
quarter.
    A tax recovery of $26 million was recorded in the quarter on a pre-tax
loss of $39 million. For the twelve month period, a tax recovery of
$45 million was recorded on a pre-tax loss of $90 million. The effective tax
rate differs from the statutory rate principally due to rate differences on
foreign activities and fluctuations in relative currency values.
    In 2005 and 2006, Norbord paid $163 million in income and income-related
taxes, principally in North America. Losses incurred in 2007 can be carried
back and applied against taxes paid for a cash refund in 2008. The Company
believes that losses incurred in 2007 will result in a cash refund of
approximately $90 million in 2008.


    
    Liquidity and Capital Resources

    (US$ millions, except per
     share information, unless   4th Qtr  3rd Qtr  4th Qtr   12 mos   12 mos
     otherwise noted)               2007     2007     2006     2007     2006
    -------------------------------------------------------------------------

    Cash provided by (used for)
     operating activities        $    72  $   (18) $    54  $    15  $   191
    Cash provided by (used for)
     operating activities per
     share                          0.49    (0.12)    0.37     0.10     1.33
    -------------------------------------------------------------------------

    Operating working capital         23      127        -       23        -
    Total working capital            151      175       20      151       20
    Investment in property, plant
     and equipment                     7        8       44       36      160
    Net debt to capitalization,
     market basis                     30%      32%      27%      30%      27%
    Net debt to capitalization,
     book basis                       60%      61%      51%      60%      51%
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    


    In addition to cash on hand of $128 million and cash generated from
operations, the Company has $235 million of committed unsecured revolving bank
lines available to support short-term liquidity requirements. During the year,
the Company increased its committed unsecured revolving bank lines from
$200 million to $235 million. At December 31, 2007, $193 million of these
lines was available and $42 million was utilized - $38 million drawn as cash
and $4 million utilized for letters of credit. These committed bank lines
mature in 2010, bear interest at money market rates plus a margin that varies
with the Company's credit rating, and contain the following financial
covenants which the Company must comply with on a quarterly basis: minimum
shareholders' equity of $300 million; and maximum net debt to total
capitalization, book basis of 65%. At period end, the Company's shareholders'
equity was $360 million versus the minimum $300 million covenant; and net debt
to total capitalization, book basis was 60% versus the maximum 65% covenant.
Subsequent to year end, the Company concluded a $100 million unsecured term
debt facility with a related company at a fixed market rate. The facility
matures in 2010 and is subordinated to the Company's committed unsecured
revolving bank lines. Any drawings under the facility are treated as
shareholders' equity for bank line covenant purposes. When added to cash and
cash equivalents and unused bank lines, Norbord now has access to $421 million
of liquidity, of which $197 million is earmarked for the upcoming March 2008
debenture maturity.
    Operating working capital, consisting of accounts receivable and
inventory less accounts payable and accrued liabilities was $23 million at
year end compared to nil at December 31, 2006. The 2007 balance excludes
$50 million of accounts receivable sold under a $50 million securitization
facility established in the fourth quarter of 2007. Norbord's accounts
receivable pool will support up to a $100 million securitization and the
Company will pursue opportunities to increase the facility in the future. The
additional investment in operating working capital is driven by strategic
initiatives and positive European business conditions in 2007.
    Higher European sales prices and volume has resulted in higher accounts
receivable balances. It should be noted that standard European collection
terms are significantly longer than in North America, amplifying the effect of
these increases. In addition, to support and grow its European business,
Norbord exported OSB from North America in the year. The inventory build, due
to longer shipping times, and differences in North American and European
collection terms has necessitated an increase in Norbord's working capital
requirements. In North America, additional volume from the new OSB line at
Cordele and strategic growth in home centre business impacted operating
working capital balances. Operating working capital has further increased due
to a lower North American profit share and incentive plan accrual.
    Total working capital at December 31, 2007 was $151 million including
$128 million in cash and cash equivalents.
    Operating activities generated $72 million of cash in the quarter,
$50 million due to the accounts receivable securitization program. The balance
is principally due to a decreased investment in operating working capital
relative to the third quarter. In the twelve month period, operating
activities generated $15 million compared to $191 million in 2006. The
decrease is principally due to higher earnings in the comparable period.
    In February 2007, the Company issued $200 million of senior notes due in
2017 with an interest rate of 6.45% which are subject to a credit ratings
based coupon step-up provision. At year end the interest rate was 6.70%. The
notes were issued to pre-fund the March 2008 debenture maturity.
    Cash dividends of $8 million were paid in the quarter (12 months -
$32 million), reflecting continued increased participation in the Company's
Dividend Reinvestment Program (DRIP). The DRIP permits Canadian shareholders
to elect to receive their dividends in the form of common shares. A $4 million
recouponing payment was made in the fourth quarter on cross-currency swaps
which are designated as hedges against the Company's net investments in Europe
(twelve month period - $21 million). This was offset by an unrealized gain on
the net investments being hedged.
    Norbord's net debt stood at $547 million at year end, representing 30% of
capitalization on a market basis and 60% of capitalization on a book basis.
Norbord believes its record of superior operational performance and prudent
balance sheet management should enable it to retain access to public and
private capital markets on attractive terms.

    Investments and Divestitures

    Investment in Property, Plant and Equipment

    Investment in property, plant and equipment was $36 million in 2007
(fourth quarter - $7 million). Investment in property, plant and equipment for
2007 includes biomass heat energy systems at Genk, Belgium and Nacogdoches,
Texas. Norbord's 2008 investment in property, plant and equipment is expected
to be $40 million.

    Non-Core Asset Sale

    In the second quarter of 2007, the I-joist mill in Juniper, New Brunswick
was sold. There was no gain or loss on the disposition. In the fourth quarter
of 2006, a $13 million provision was taken in relation to these assets
following the indefinite closure of the mill.


    
    Selected Quarterly Information

    (US$ millions,
     except per share
     information,                 2007                        2006
     unless           -------------------------------------------------------
     otherwise          4th    3rd    2nd    1st    4th    3rd    2nd    1st
     noted)             Qtr    Qtr    Qtr    Qtr    Qtr    Qtr    Qtr    Qtr
    -------------------------------------------------------------------------

    Cash provided by
     (used for)
     operating
     activities          72    (18)    11    (50)    54     37     70     30
    Cash provided by
     (used for)
     operating
     activities per
     share             0.49  (0.12)  0.07  (0.34)  0.37   0.26   0.49   0.21
    Return on capital
     employed (ROCE)     (3)%   11%     6%     2%     8%    15%    33%    46%
    Return on equity
     (ROE)              (14)%   (1)%  (15)%  (15)%   (1)%    6%    27%    43%
    -------------------------------------------------------------------------

    Net Sales           263    292    288    261    259    291    334    368
    EBITDA               (9)    30     17      4     22     35     79    111
    Earnings            (13)    (1)   (15)   (16)    (1)     7     33     58

    Earnings per share
      Basic           (0.09)  0.00  (0.11) (0.11)  0.00   0.05   0.23   0.40
      Diluted         (0.09)  0.00  (0.11) (0.11) (0.01)  0.05   0.23   0.40
    -------------------------------------------------------------------------

    OSB shipments
     (MMsf 3/8")      1,130  1,060  1,161  1,112  1,083  1,076  1,048  1,082
    Average OSB price
     - North Central
     ($/Msf 7/16")      165    177    156    145    166    181    238    285
    Average OSB price
     - South East
     ($/Msf 7/16")      132    149    153    138    141    181    249    303
    Average OSB price
     - Europe
     (euro/m(3))        234    246    249    234    219    213    204    197
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    


    The price of OSB is the primary variable affecting the comparability of
Norbord's results over the past eight quarters. Fluctuations in earnings
during that time mirror fluctuations in the price of OSB in North America. The
Company estimates the annualized impact of a $10 per Msf (7/16-inch basis)
change in the North American OSB price on EBITDA in 2007 is approximately
$35 million or approximately $0.16 per share. Regional pricing variations,
particularly in the US South, make the North Central benchmark price a useful,
albeit imperfect, proxy for overall North American OSB pricing. Further,
premiums obtained on value added products, the pricing lag effect of
maintaining an order file, and volume and trade discounts cause realized
prices to differ from the benchmark.
    Norbord has a relatively low exposure to the Canadian dollar due to a
comparatively small manufacturing base in Canada, comprising 13% of panel
production capacity. The Company estimates the unfavourable impact of a
US one cent increase in the Canadian dollar to negatively impact annual EBITDA
by approximately $1 million.
    Quarterly results are also impacted by seasonal factors such as weather
and building activity. Market demand varies seasonally, as home building
activity and repair and renovation work, the principal end use for Norbord's
products, are generally stronger in the spring and summer months. Adverse
weather can also limit access to logging areas, which can affect the supply of
fibre to Norbord's operations. Shipment volumes and commodity prices are
affected by these factors as well as by global supply and demand conditions.
    Items not related to ongoing business operations that had a significant
impact on fourth quarter 2006 results include pre-tax income of $7 million
($0.03 per share) due to softwood lumber duty refunds, the $13 million
provision ($0.06 per share) for non-core operation and tax recovery of
$4 million ($0.03 per share) due to the resolution of several income tax audit
items relating to prior taxation years. In addition, in the third quarter of
2007, management's estimate of the useful life of its OSB assets changed from
15 years to 25 years. The impact of this change in estimate on depreciation
expense was a $9 million reduction. In the second quarter of 2007,
depreciation expense increased $3 million as depreciation commenced on the new
OSB line at Cordele.

    Common Shares

    At January 31, 2008, there were 146.8 million common shares outstanding.
In addition, 2.4 million stock options were outstanding, of which
approximately 40% were fully vested.

    Changes in Accounting Policies and Significant Accounting Estimates

    In accordance with the Company's policy, depreciation rates for property,
plant and equipment are assessed from time to time to ensure they continue to
approximate their useful life. Effective July 1, 2007, management's estimate
of the useful life for its OSB assets was changed from 15 years to 25 years.
This change in estimate was accounted for prospectively. The impact of this
change in estimate on third and fourth quarter deprecation was a reduction of
$9 million.
    Effective January 1, 2007, the Company adopted new accounting
recommendations from the Canadian Institute of Chartered Accountants (CICA),
Handbook Section 1530, Comprehensive Income, Section 1651, Foreign Currency
Translation, Section 3251, Equity, Section 3855, Financial Instruments -
Recognition and Measurement, Section 3861, Financial Instruments - Disclosure
and Presentation and Section 3865, Hedges.
    Section 1530 established standards for reporting and presenting a
comprehensive income statement.
    Section 3855 requires all financial assets and financial liabilities to
be classified as one of five categories. Financial assets are to be classified
as either held for trading, available for sale, held to maturity or loans and
receivables. Financial liabilities are to be classified as either held for
trading or other financial liabilities. All financial assets and financial
liabilities are to be carried at fair value in the consolidated balance sheet,
except held to maturity, loans and receivables and other financial liabilities
which are carried at amortized cost.
    Subsequent accounting for changes in fair value will depend on initial
classification. Realized and unrealized gains and losses on financial assets
and liabilities that are held for trading will continue to be recorded in the
consolidated statement of earnings. Unrealized gains and losses on financial
assets that are held as available for sale are to be recorded in other
comprehensive income until realized, at which time they will be recorded in
the consolidated statement of earnings. During the quarter, the Company did
not have any financial assets or liabilities other than cash & cash
equivalents which would be designated as either held for trading or available
for sale.
    Section 3865 specifies the criteria that must be satisfied in order for
hedge accounting to be applied and the accounting for each of the permitted
hedging strategies: fair value hedges, cash flow hedges and hedges of foreign
currency exposures of net investments in self sustaining foreign operations.
    In accordance with these new standards there has been a retroactive
adjustment to reclassify the negative $8 million of cumulative translation
adjustment as of January 1, 2006 and $2 million as of January 1, 2007 as
accumulated other comprehensive income. There was no impact to opening
retained earnings on adoption of these accounting recommendations.

    Accounting Developments

    The CICA has issued several new accounting standards including: Section
1535, Capital Disclosures, Section 3031, Inventories, Section 3862, Financial
Instruments - Disclosure, and Section 3863, Financial Instruments -
Presentation. The Company will adopt these new standards in the first quarter
of 2008 and is currently assessing the impact of adoption on its consolidated
financial statements.
    Section 1535 specifies the requirements for the disclosure of information
relating to objectives, policies and processes for managing capital.
    Section 3031 relates to the accounting for inventories and revises and
enhances the requirements for assigning costs to inventories.
    Section 3862 and Section 3863 replace Section 3861, Financial Instruments
- Disclosure and Presentation, and revise and enhance the disclosure
requirements and carry forward the presentation requirements.

    Class Action Lawsuit

    Norbord and eight other North American OSB producers have been named as
defendants in several lawsuits filed in the US District Court for the Eastern
District of Pennsylvania. The lawsuits allege that these nine North American
OSB producers violated US and various state antitrust and other laws by
allegedly agreeing to fix prices and reduce the supply of OSB from June 1,
2002 through the present.
    As of January 31, 2008, the Court certified the following classes: A
nationwide class of persons and entities that purchased OSB in the US directly
from any of the defendant North American OSB producers between June 1, 2002
and February 24, 2006; a nationwide class of persons who, as end users,
indirectly purchased in the US for their own use, and not for resale, new OSB
manufactured and sold by one or more of the defendant North American OSB
producers between June 1, 2002 and February 24, 2006 (other than persons who
purchased OSB only as part of a house or other structure); and a multi-state
class of residents of seventeen States who, as end users, indirectly purchased
in the US for their own use, and not for resale, new OSB manufactured and sold
by one or more of the defendant North American OSB producers between June 1,
2002 and February 24, 2006 (other than persons who purchased OSB only as part
of a house or other structure).
    All three classes seek damages or injunctive or other relief under
applicable laws. The direct purchaser class trial date is set for June 3, 2008
and no trial date has been set for the two indirect purchaser classes. The
Court has not yet set a schedule for providing notice of the certified
litigation classes to potential class members, as required under US law. After
notice is provided, one or more potential members may choose to opt out of the
class and separately pursue claims against Norbord and the other defendants.
    Norbord believes that the lawsuits are entirely without merit and intends
to defend this matter vigorously. However, the outcome of litigation is
subject to inherent uncertainties and an adverse outcome to these litigations
have the potential to materially and adversely affect Norbord's business,
financial condition, and results of operations.

    Environmental Matters

    Norbord's operations are subject to a range of general and
industry-specific environmental laws and regulations relating to air
emissions, wastewater discharges, solid and hazardous waste management, plant
and wildlife protection and site remediation. Norbord believes that all of its
facilities are in substantial compliance with these matters. Failure to comply
with applicable environmental laws and regulations could result in fines,
penalties or other enforcement actions that could impact Norbord's production
capacity or increase Norbord's production costs.
    Maximum Achievable Control Technology (MACT) regulations, designed to
reduce hazardous air emissions, took effect in the US in 2004. The new
standards apply to more than 200 mills manufacturing plywood, OSB, MDF,
particleboard and other wood composite panels. In June 2007, the US Court of
Appeals made two important decisions which impacted Norbord's MACT compliance
plans. First, the courts removed the health based low risk compliance option,
which was expected to exempt three Norbord operations. The cost of complying
with the amended rules is estimated to be $4 million in addition to the
$8 million investment already planned. Second, the courts reinstated the
original October 2007 compliance deadline. Individual states, however, have
the authority to grant 12-month extensions and the Company has extended the
deadlines to October 2008 where necessary. All of Norbord's other US mills
were already MACT compliant by the end of 2005.
    The US EPA continues to work on a separate MACT regulation for emissions
of hazardous air pollutants from industrial boilers.

    Internal Controls Over Financial Reporting

    Internal controls over financial reporting are designed to provide
reasonable assurance regarding the reliability of financial reporting and
compliance with Canadian generally accepted accounting principles. There have
been no changes in Norbord's internal control over financial reporting during
the interim period ended December 31, 2007 that have materially affected or
are reasonably likely to materially affect its internal control over financial
reporting.

    Non-GAAP Financial Measures

    The following non-GAAP financial measures have been used in this MD&A.
Non-GAAP financial measures do not have any standardized meaning prescribed by
GAAP and are therefore unlikely to be comparable to similar measures presented
by other companies. Each non-GAAP financial measure is defined below. Where
appropriate, a quantitative reconciliation of the non-GAAP financial measure
to the most directly comparable GAAP measure is provided.

    EBITDA is earnings determined in accordance with GAAP from continuing
operations before interest, provision for non-core operation, income tax,
depreciation and amortization. As Norbord operates in a cyclical commodity
business, Norbord interprets EBITDA over the cycle as a useful indicator of
the company's ability to incur and service debt and meet capital expenditure
requirements. In addition, Norbord views EBITDA as a measure of gross profit
and interprets EBITDA trends as an indicator of relative operating
performance. The following table reconciles EBITDA to the most directly
comparable GAAP measure:


    
    -------------------------------------------------------------------------
                                 4th Qtr  3rd Qtr  4th Qtr   12 mos   12 mos
    (US$ millions)                  2007     2007     2006     2007     2006
    -------------------------------------------------------------------------

    Earnings                     $   (13) $    (1) $    (1) $   (45) $    97
    Add:  provision for non-core
           operation                   -        -       13        -       13
    Add:  Interest expense            13       13        7       49       29
    Less: Interest and other
           income                     (1)       -        -       (5)      (3)
    Add:  Income tax                 (26)      (1)     (21)     (45)      17
    Add:  Depreciation                18       19       24       88       94
    -------------------------------------------------------------------------

    EBITDA                       $    (9) $    30  $    22  $    42  $   247
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    


    EBITDA margin (%) is EBITDA as a percentage of net sales. When compared
with industry statistics and prior periods, EBITDA margin can be a useful
indicator of operating efficiency and a company's ability to compete
successfully with its peers. Norbord interprets EBITDA margin trends as an
indicator of relative operating performance.

    Operating working capital is accounts receivable plus inventory less
accounts payable. Operating working capital is a measure of the investment in
accounts receivable, inventory and accounts payable required to support
operations. The Company aims to minimize its investment in operating working
capital, however, the amount will vary with seasonality, and sales expansions
and contractions.

    Total Working capital is operating working capital plus cash and cash
equivalents less bank advances.

    Capital employed is the sum of property, plant and equipment, operating
working capital and other assets less any unrealized balance sheet losses
included in other liabilities. Capital employed is a measure of the total
investment in a business in terms of property, plant, equipment, operating
working capital and other assets. The following table details the composition
of capital employed:


    
    -------------------------------------------------------------------------
                                          Dec 31        Sep 29        Dec 31
    (US$ millions)                          2007          2007          2006
    -------------------------------------------------------------------------

    Property, plant and equipment      $     968     $     981     $   1,008
    Accounts receivable                       83           195           130
    Tax receivable                            89             -            33
    Inventory                                131           125            98
    Accounts payable and accrued
     liabilities                            (191)         (193)         (228)
    Other assets                               5             6             7
    Unrealized net investment hedge
     gain (loss)(1)                           (8)          (21)          (25)
    -------------------------------------------------------------------------

    Capital employed                   $   1,077     $   1,093     $   1,023
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) Included in other liabilities
    


    ROCE (return on capital employed) is EBITDA divided by average capital
employed. ROCE is a measurement of financial performance, focusing on cash
generation and the efficient use of capital. As Norbord operates in a cyclical
commodity business, Norbord interprets ROCE over the cycle as a useful means
of comparing businesses in terms of efficiency of management and viability of
products. Norbord targets top quartile ROCE among North American forest
products companies over the cycle.

    ROE (return on common equity) is earnings available to common
shareholders (earnings less preferred share dividends) divided by common
shareholders' equity. ROE is a measure for common shareholders to determine
how effectively their invested capital is being employed. As Norbord operates
in a cyclical commodity business, Norbord looks at ROE over the cycle and
targets top quartile performance among North American forest products
companies.

    Net debt is the principal value of long-term debt including the current
portion and bank advances less cash and cash equivalents. Net debt is a useful
indicator of a company's debt position. Net debt is comprised of:


    
    -------------------------------------------------------------------------
                                          Dec 31        Sep 29        Dec 31
    (US$ millions)                          2007          2007          2006
    -------------------------------------------------------------------------

    Long-term debt                     $     478     $     440     $     480
    Current portion of long-term debt        197           200             -
    Cash and cash equivalents               (128)          (48)          (20)
    -------------------------------------------------------------------------

    Net debt                           $     547     $     592     $     460
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    


    Net debt to capitalization, book basis is net debt divided by the sum of
net debt and shareholders' equity. Net debt to capitalization, book basis is a
measure of a company's relative debt position. Norbord interprets this measure
as an indicator of the relative strength and flexibility of its balance sheet.

    Net debt to capitalization, market basis is net debt divided by the sum
of net debt and market capitalization. Market capitalization is the number of
common shares outstanding at period end multiplied by the trailing 12-month
average per share market price. Market basis capitalization is intended to
correct for the low historical book value of Norbord's asset base relative to
its fair value. Net debt to capitalization, market basis is a key measure of a
company's relative debt position and Norbord interprets this measure as an
indicator of the relative strength and flexibility of its balance sheet. While
the Company considers both book and market basis metrics, the Company believes
the market basis to be superior to the book basis in measuring the true
strength and flexibility of its balance sheet.

    Forward-Looking Statements

    This document contains forward-looking statements, as defined in
applicable legislation. The words "believes," "believe," "should," "expect,"
"expected," "will," "aim," "estimates," "estimated," "goal," and other
expressions which are predictions of or indicate future events, trends or
prospects and which do not relate to historical matters identify
forward-looking statements. Forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause the actual
results, performance or achievements of Norbord to be materially different
from any future results, performance or achievements expressed or implied by
the forward-looking statements.
    Examples of such statements include, but are not limited to, comments
with respect to: (1) outlook for the markets for products; (2) expectations
regarding future product pricing: (3) the outlook for operations; (4)
expectations regarding mill capacity and production volumes; (5) objectives;
(6) strategies to achieve those objectives; (7) sensitivity to changes in
product prices, such as the price of OSB; (8) sensitivity to changes in
foreign exchange rates; (9) margin improvement program targets; (10)
expectations regarding contingent liabilities, lawsuits and guarantees,
including the outcome of pending litigation; (11) expectations regarding the
amount, timing and benefits of capital investments; and (12) expectations
regarding the amount and timing of tax refunds.
    Although Norbord believes it has a reasonable basis for making these
forward-looking statements, readers are cautioned not to place undue reliance
on such forward-looking information. By its nature, forward-looking
information involves numerous assumptions, inherent risks and uncertainties,
both general and specific, which contribute to the possibility that the
predictions, forecasts and other forward-looking statements will not occur.
Factors that could cause actual results to differ materially from those
contemplated or implied by forward-looking statements include: general
economic conditions; risks inherent with product concentration; effects of
competition and product pricing pressures; risks inherent with customer
dependence; effects of variations in the price and availability of
manufacturing inputs; risks inherent with a capital intensive industry; and
other risks and factors described from time to time in filings with Canadian
securities regulatory authorities and the US Securities and Exchange
Commission.
    Except as required by applicable laws, Norbord does not undertake to
update any forward-looking statements, whether as a result of new information,
future events or otherwise, or to publicly update or revise the above list of
factors affecting this information. See the "Caution Regarding Forward-Looking
Information" statement in the March 1, 2007 Annual Information Form and the
cautionary statement contained in the "Forward-Looking Statements" section of
the 2006 Management's Discussion and Analysis dated January 31, 2007.


    
                                NORBORD INC.
                     CONSOLIDATED STATEMENTS OF EARNINGS

    (unaudited)

    (US $ millions, except per   4th Qtr     4th Qtr      12 mos      12 mos
     share information)             2007        2006        2007        2006
    -------------------------------------------------------------------------

    Net sales                  $     263   $     259   $   1,104   $   1,252
    -------------------------------------------------------------------------

    Earnings before interest,
     income tax and
     depreciation and
     provision for non-core
     operation                        (9)         22          42         247

    Provision for non-core
     operation                         -         (13)          -         (13)
    Interest and other income          1           -           5           3
    Interest expense                 (13)         (7)        (49)        (29)
    -------------------------------------------------------------------------

    Earnings before income
     tax and depreciation            (21)          2          (2)        208

    Depreciation (note 2)            (18)        (24)        (88)        (94)
    Income tax (note 8)               26          21          45         (17)
    -------------------------------------------------------------------------

    Earnings                   $     (13)  $      (1)  $     (45)  $      97
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings per common
     share (note 7)
      - Basic                  $   (0.09)  $    0.00   $   (0.31)  $    0.68
      - Diluted                $   (0.09)  $   (0.01)  $   (0.31)  $    0.67
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (See accompanying notes)



                                NORBORD INC.
                    CONSOLIDATED STATEMENTS OF CASH FLOWS

    (unaudited)
                                 4th Qtr     4th Qtr      12 mos      12 mos
    (US $ millions)                 2007        2006        2007        2006
    -------------------------------------------------------------------------

    CASH PROVIDED BY (USED FOR):

    Operating Activities
    Earnings                   $     (13)  $      (1)  $     (45)  $      97
    Items not affecting cash:
      Provision for non-core
       operation                       -          13           -          13
      Depreciation (note 2)           18          24          88          94
      Future income taxes
       (note 8)                      (30)        (11)        (46)         11
    Other items                       (5)         (6)         (5)        (15)
    -------------------------------------------------------------------------
                                     (30)         19          (8)        200

    Net change in non-cash
     working capital balances
     (note 3)                        102          35          23          (9)
    -------------------------------------------------------------------------

                                      72          54          15         191
    -------------------------------------------------------------------------

    Investing Activities
    Investment in property,
     plant and equipment              (7)        (44)        (36)       (160)
    Other (note 9)                   (12)         (8)        (32)        (11)
    -------------------------------------------------------------------------

                                     (19)        (52)        (68)       (171)
    -------------------------------------------------------------------------

    Financing Activities
    Issue of senior notes (note 4)     -           -         198           -
    Dividends                         (8)         (7)        (32)       (167)
    Repurchase of 8 1/8%
     debentures (note 4)              (3)          -          (3)          -
    Other debt incurred (repaid)
     (note 4)                         38          14          (2)         40
    Repurchase of common shares
     (note 6)                          -           -           -         (29)
    Issue of common shares
     (note 6)                          -           -           -           1
    -------------------------------------------------------------------------

                                      27           7         161        (155)
    -------------------------------------------------------------------------

    Increase (decrease) in
     cash and cash
     equivalents               $      80   $       9   $     108   $    (135)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cash and cash equivalents,
     beginning of period       $      48   $      11   $      20   $     155
    Cash and cash equivalents,
     end of period                   128          20         128          20
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (See accompanying notes)



                                NORBORD INC.
                         CONSOLIDATED BALANCE SHEETS

                                                         Dec 31       Dec 31
    (US $ millions)                                        2007         2006
    -------------------------------------------------------------------------
                                                     (unaudited)
    ASSETS
    Current assets:
      Cash and cash equivalents                       $     128    $      20
      Accounts receivable (note 3)                           83          130
      Tax receivable                                         89           33
      Inventory                                             131           98
      Future income taxes                                     -            3
    -------------------------------------------------------------------------
                                                            431          284

    Property, plant and equipment                           968        1,008
    Other assets                                              5            7
    -------------------------------------------------------------------------

                                                      $   1,404    $   1,299
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current liabilities:
      Accounts payable and accrued liabilities        $     191    $     228
      Current portion of long-term debt (note 4)            199            -
    -------------------------------------------------------------------------
                                                            390          228

    Long-term debt (note 4)                                 480          480
    Other liabilities (note 5)                               18           44
    Future income taxes                                     156          113
    Shareholders' equity (note 6)                           360          434
    -------------------------------------------------------------------------

                                                      $   1,404    $   1,299
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (See accompanying notes)



                                NORBORD INC.
                CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
                          AND COMPREHENSIVE INCOME

    (unaudited)
                                 4th Qtr     4th Qtr      12 mos      12 mos
    (US $ millions)                 2007        2006        2007        2006
    -------------------------------------------------------------------------

    Retained Earnings
    Balance, beginning of
     period                    $     233   $     318   $     305   $     412
    Earnings                         (13)         (1)        (45)         97
    Common share dividends           (15)        (12)        (55)       (178)
    Repurchase of common
     shares (note 6)                   -           -           -         (26)
    -------------------------------------------------------------------------

    Balance, end of period     $     205   $     305   $     205   $     305
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Comprehensive Income
    Earnings                   $     (13)  $      (1)  $     (45)  $      97

    Other comprehensive income:
      Net change in unrealized
       cumulative translation
       gains (losses)                 (3)          4           2          10
    -------------------------------------------------------------------------

    Comprehensive Income       $     (16)  $       3   $     (43)  $     107
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (See accompanying notes)



                                 NORBORD INC.
           NOTES TO THE INTERIM CONSOLIDATED FINANCIAL STATEMENTS

    (unaudited)

    (In US$, unless otherwise noted)
    

    Note 1 - Basis of Presentation
    ------------------------------

    The interim financial statements are unaudited and follow the accounting
    policies summarized in the notes to the annual consolidated financial
    statements, except as noted in note 2, below.

    The interim financial statements do not conform in all respects to the
    disclosure requirements of Canadian generally accepted accounting
    principles for annual financial statements and should, therefore, be read
    in conjunction with the annual consolidated financial statements of
    Norbord Inc. which includes information necessary or useful to
    understanding the Company's business and financial statement
    presentation. In particular, the Company's significant accounting
    policies and practices are presented as Note 1 to the annual consolidated
    financial statements. Certain prior period amounts have been reclassified
    to conform to the current period's presentation.

    Note 2 - Changes in Accounting Policies and Significant Accounting
    ------------------------------------------------------------------
    Estimates
    ---------

    Effective January 1, 2007, the Company adopted new accounting
    recommendations from the Canadian Institute of Chartered Accountants
    (CICA), Handbook Section 1530, Comprehensive Income, Section 1651,
    Foreign Currency Translation, Section 3251, Equity, Section 3855,
    Financial Instruments - Recognition and Measurement, Section 3861,
    Financial Instruments - Disclosure and Presentation and Section 3865,
    Hedges.

    Section 1530 established standards for reporting and presenting a
    comprehensive income statement.

    Section 3855 requires all financial assets and financial liabilities to
    be classified as one of five categories. Financial assets are to be
    classified as either held for trading, available for sale, held to
    maturity or loans and receivables. Financial liabilities are to be
    classified as either held for trading or other financial liabilities. All
    financial assets and financial liabilities are to be carried at fair
    value in the consolidated balance sheet, except held to maturity, loans
    and receivables and other financial liabilities which are carried at
    amortized cost.

    Subsequent accounting for changes in fair value will depend on initial
    classification. Realized and unrealized gains and losses on financial
    assets and liabilities that are held for trading will continue to be
    recorded in the consolidated statement of earnings. Unrealized gains and
    losses on financial assets that are held as available for sale are to be
    recorded in other comprehensive income until realized, at which time they
    will be recorded in the consolidated statement of earnings. During the
    quarter, the Company did not have any financial assets or liabilities
    other than cash & cash equivalents which would be designated as either
    held for trading or available for sale.

    Section 3865 specifies the criteria that must be satisfied in order for
    hedge accounting to be applied and the accounting for each of the
    permitted hedging strategies: fair value hedges, cash flow hedges and
    hedges of foreign currency exposures of net investments in self
    sustaining foreign operations.

    In accordance with these new standards there has been a retroactive
    adjustment to reclassify the negative $8 million of cumulative
    translation adjustment as of January 1, 2006 and $2 million as of
    January 1, 2007 as accumulated other comprehensive income. There was no
    impact to opening retained earnings on adoption of these new accounting
    recommendations.

    In accordance with the Company's policy, depreciation rates for property,
    plant and equipment are assessed from time to time to ensure they
    continue to approximate their useful life. Effective July 1, 2007,
    management's estimate of the useful life for its OSB assets was changed
    from 15 years to 25 years. This change in estimate was accounted for
    prospectively. The impact of this change in estimate on fourth quarter
    deprecation was a reduction of $9 million.

    The CICA has issued several new accounting standards including: Section
    1535, Capital Disclosures, Section 3031, Inventories, Section 3862,
    Financial Instruments - Disclosure, and Section 3863, Financial
    Instruments - Presentation. The Company will adopt these new standards in
    the first quarter of 2008 and is currently assessing the impact of
    adoption on its consolidated financial statements.

    Section 1535 specifies the requirements for the disclosure of information
    relating to objectives, policies and processes for managing capital.

    Section 3031 relates to the accounting for inventories and revises and
    enhances the requirements for assigning costs to inventories.

    Section 3862 and Section 3863 replace Section 3861, Financial Instruments
    - Disclosure and Presentation, and revise and enhance the disclosure
    requirements and carry forward the presentation requirements.

    Note 3 - Accounts Receivable
    ----------------------------

    During the fourth quarter of 2007, Norbord entered into a $50 million
    accounts receivable securitization program with a highly-rated financial
    institution. The program is committed for ten months, and is
    automatically extended on each four month anniversary date unless
    terminated by either party prior to such anniversary date. Under the
    program, Norbord has transferred substantially all of its present and
    future trade accounts receivable to the financial institution, on a fully
    serviced basis, for proceeds consisting of cash and deferred purchase
    price. Norbord can increase or decrease the cash component of proceeds on
    each settlement date, subject to the program limit.

    The securitization program is subject to certain financial covenants
    which the Company must comply with on a quarterly basis. In addition, the
    program contains trade accounts receivable portfolio performance
    covenants and standard reporting requirements. The program is not subject
    to any credit-rating requirements.

    At December 31, 2007, Norbord recorded cash proceeds of $50 million and
    deferred purchase price of $61 million relating to this program. The
    deferred purchase price is recorded in accounts receivable. The fair
    value of the deferred purchase price approximates its carrying value as a
    result of the short, accounts receivable collection cycle and negligible
    historical credit losses.

    
    Note 4 - Long-Term Debt
    -----------------------

    (US$ millions)                                          Book Value
    -------------------------------------------------------------------------
                                          Fair Value
                               Principal     Adjust-      Dec 31      Dec 31
                                   Value       ments        2007        2006
    -------------------------------------------------------------------------

    8 1/8% debentures due 2008  $    197    $      -    $    197    $    200
    7 1/4% debentures due 2012       240           7         247         240
    6.7% senior notes due 2017       200          (3)        197           -
    Other debt                        38           -          38          40
    -------------------------------------------------------------------------
                                     675           4         679         480
    Less current portion of
     long-term debt                 (197)         (2)       (199)          -
    -------------------------------------------------------------------------
                                $    478    $      2    $    480    $    480
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

    At December 31, 2007, the Company had $362 million (December 31, 2006 -
    $365 million) of interest rate swaps outstanding. The terms of these
    swaps correspond to the terms of the underlying hedged debt. In 2007, the
    Company repurchased $3 million of the 8 1/8% debentures due 2008 and
    unwound a corresponding amount of interest rate swaps.

    In the first quarter, the Company issued $200 million of senior notes due
    in 2017 with an interest rate of 6.45% which are subject to a credit
    ratings based coupon step-up provision. At period end the rate was 6.70%.

    The Company has committed unsecured revolving bank lines of $235 million
    which mature in 2010, bear interest at money market rates plus a margin
    that varies with the Company's credit rating, and contain the following
    financial covenants which the Company must comply with on a quarterly
    basis: minimum shareholders' equity of $300 million; and maximum net debt
    to total capitalization, book basis of 65%. At period end, the Company's
    shareholders' equity was $360 million versus the minimum $300 million
    covenant; and net debt to total capitalization, book basis was 60% versus
    the maximum 65% covenant. At period end, $193 million of these lines was
    available to support short-term liquidity requirements, $38 million was
    drawn as cash and $4 million was utilized for letters of credit.
    Subsequent to year end, the Company concluded a $100 million unsecured
    term debt facility with a related company at a fixed market rate. The
    facility matures in 2010 and is subordinated to the Company's committed
    unsecured revolving bank lines. Any drawings under the facility are
    treated as shareholders' equity for bank line covenant purposes.

    
    Note 5 - Other Liabilities
    --------------------------

                                                         Dec 31       Dec 31
    (US$ millions)                                         2007         2006
    -------------------------------------------------------------------------

    Unrealized net investment hedge losses (note 11)   $      8     $     25
    Accrued pension and post-retirement benefits              3            4
    Unrealized interest rate swap losses                      3            -
    Deferred interest rate swap gains                         -           11
    Other liabilities                                         4            4
    -------------------------------------------------------------------------
                                                       $     18     $     44
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    The unrealized net investment hedge losses and unrealized interest rate
    swap losses are offset by unrealized gains on the underlying exposures
    being hedged.

    Note 6 - Shareholders' Equity
    -----------------------------

                                                         Dec 31       Dec 31
    (US$ millions)                                         2007         2006
    -------------------------------------------------------------------------

    Capital stock:
      Common shares                                    $    150     $    127
      Contributed surplus                                     1            -
    -------------------------------------------------------------------------
                                                            151          127
    Retained earnings                                       205          305
    Accumulated other comprehensive income                    4            2
    -------------------------------------------------------------------------
                                                       $    360     $    434
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Summary of common share transactions:

                                    12 mos ended            12 mos ended
                                    Dec 31, 2007            Dec 31, 2006
                               ----------------------  ----------------------
                                              Amount                  Amount
                                  Shares        (US$      Shares        (US$
                                (million)   millions)   (million)   millions)
    -------------------------------------------------------------------------
    Balance at beginning of
     period                        143.8    $    127       144.8    $    118
    Dividend reinvestment plan       2.8          23         1.4          11
    Issue of common shares           0.2           -         0.3           1
    Repurchase of common shares        -           -        (2.7)         (3)
    -------------------------------------------------------------------------
    Balance at end of period       146.8    $    150       143.8    $    127
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    In the first quarter, 0.8 million options were granted under the stock
    option plan. Year-to-date, cost of sales include $1 million related to
    stock based compensation expense.

    Summary of accumulated other comprehensive income movements:

                                                 12 mos ended   12 mos ended
    (US$ millions)                               Dec 31, 2007   Dec 31, 2006
    -------------------------------------------------------------------------

    Balance at beginning of period                   $      -       $      -
    Adoption of new accounting recommendations              2             (8)
    -------------------------------------------------------------------------
    Adjusted balance at beginning of period                 2             (8)
    Other comprehensive income                              2             10
    -------------------------------------------------------------------------
    Balance at end of period                         $      4       $      2
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Note 7 - Earnings per Common Share
    ----------------------------------

    Earnings per common share are calculated as follows:

    ((US$ millions, except per
     share information, unless   4th Qtr     4th Qtr      12 mos      12 mos
     otherwise noted)               2007        2006        2007        2006
    -------------------------------------------------------------------------

    Earnings available to
     common shareholders        $    (13)   $     (1)   $    (45)   $     97
                              -----------------------------------------------
                              -----------------------------------------------

    Common shares (millions):
    Weighted average number of
     common shares outstanding     146.0       143.1       144.9       143.4
      Stock options                  0.2         0.4         0.3         0.5
                              -----------------------------------------------
      Diluted number of common
       shares                      146.2       143.5       145.2       143.9
                              -----------------------------------------------
                              -----------------------------------------------

    Earnings per common share:
      Basic                     $  (0.09)   $   0.00    $  (0.31)   $   0.68
      Diluted                   $  (0.09)   $  (0.01)   $  (0.31)   $   0.67
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Stock options issued under the Company's stock option plan were included
    in the calculation of diluted number of common shares to the extent the
    exercise price of those options was less than the average market price of
    the Company's common shares during the period.

    Note 8 - Income Tax
    -------------------

    Interim income tax is calculated based on expected annual effective tax
    rates.

                                 4th Qtr     4th Qtr      12 mos      12 mos
    (US$ millions)                  2007        2006        2007        2006
    -------------------------------------------------------------------------
    (expense) recovery

    Current income tax         $      88   $      10   $      91   $      (6)
    Future income tax                (62)         11         (46)        (11)
    -------------------------------------------------------------------------
    Income tax                 $      26   $      21   $      45   $     (17)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------


    Note 9 - Supplemental Cash Flow Information
    -------------------------------------------

    Other investing activities comprises:

                                 4th Qtr     4th Qtr      12 mos      12 mos
    (US$ millions)                  2007        2006        2007        2006
    -------------------------------------------------------------------------

    Cash provided by (used
     for):
      Recouponing payment,
       (note 11)               $      (4)  $       -   $     (21)  $       -
      Realized net investment
       hedge gains (losses)
       (note 11)                      (6)         (6)         (8)  $     (13)
      Other                           (2)         (2)         (3)          2
    -------------------------------------------------------------------------
                               $     (12)  $      (8)  $     (32)  $     (11)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    


    Note 10 - Related Party Transactions
    ------------------------------------

    The Company's major shareholder has various interests over which it has
    control or otherwise has significant influence (a "related company" or
    collectively "related companies").

    During the quarter, the Company provided certain administrative services
    to a related company which were charged on a cost recovery basis. In
    addition, the Company periodically engages the services of related
    companies for various financial, real estate and other business advisory
    services. The total fees for the above noted services were less than
    $1 million in the quarter, and were charged at market rates.

    In January 2008, subsequent to period end, the Company concluded a
    $100 million unsecured term debt facility with a related company at
    market rates (note 4).

    Note 11 - Commitments and Contingencies
    ---------------------------------------

    Foreign Exchange Hedges
    -----------------------

    At period end, the Company has outstanding forward foreign exchange
    contracts of 3 million pnds sterling (2006 - 5 million pnds sterling) and
    euro 84 million (2006 - euro 59 million) and cross-currency swaps of
    125 million pnds sterling (2006 - 125 million pnds sterling), which are
    designated as hedges against its net investments in Europe. In 2007, the
    Company realized a loss of $8 million (2006 - gain of $13 million) on its
    matured net investment hedges, and at period end, the Company had an
    unrealized loss of $8 million (2006 - loss of $25 million) on its
    outstanding net investment hedges. In addition, in 2007, the Company paid
    $23 million, and received $2 million to recoupon its cross-currency
    swaps. Realized and unrealized losses are offset by realized and
    unrealized gains on the net investments being hedged.

    In addition, at period end, the Company has outstanding forward foreign
    exchange contracts of CAD $66 million (2006 - CAD $9 million), which
    serve to hedge certain Canadian dollar-denominated monetary liabilities.
    In 2007, the Company realized a gain of $4 million (2006 - loss of
    $1 million) on its matured monetary liability hedges, and at period end,
    the Company had an unrealized gain of $2 million (2006 - nil) on these
    outstanding hedges. Realized and unrealized gains, if any, are offset by
    realized and unrealized losses on the monetary liabilities being hedged.

    The Company has entered into forward foreign exchange contracts of
    CAD$24 million, which are designated as a hedge of future Canadian
    dollar-denominated net costs. At period end, the Company had an
    unrealized gain of nil (2006 - nil) on the outstanding hedges.

    Class Action Lawsuit
    --------------------

    Norbord and eight other North American OSB producers have been named as
    defendants in several lawsuits filed in the US District Court for the
    Eastern District of Pennsylvania. The lawsuits allege that these nine
    North American OSB producers violated US and various state antitrust and
    other laws by allegedly agreeing to fix prices and reduce the supply of
    OSB from June 1, 2002 through the present.

    As of January 17, 2007, the Court certified the following classes: A
    nationwide class of persons and entities that purchased OSB in the US
    directly from any of the defendant North American OSB producers between
    June 1, 2002 and February 24, 2006; a nationwide class of persons who, as
    end users, indirectly purchased in the US for their own use, and not for
    resale, new OSB manufactured and sold by one or more of the defendant
    North American OSB producers between June 1, 2002 and February 24, 2006
    (other than persons who purchased OSB only as part of a house or other
    structure); and a multi-state class of residents of seventeen States who,
    as end users, indirectly purchased in the US for their own use, and not
    for resale, new OSB manufactured and sold by one or more of the defendant
    North American OSB producers between June 1, 2002 and February 24, 2006
    (other than persons who purchased OSB only as part of a house or other
    structure).

    All three classes seek damages or injunctive or other relief under
    applicable laws. The direct purchaser class trial date is set for June 3,
    2008 and no trial date has been set for the two indirect purchaser
    classes. The Court has not yet set a schedule for providing notice of the
    certified litigation classes to potential class members, as required
    under US law. After notice is provided, one or more potential members may
    choose to opt out of the class and separately pursue claims against
    Norbord and the other defendants.

    Norbord believes that the lawsuits are entirely without merit and intends
    to defend this matter vigorously.

    Note 12 - Geographic Segments
    -----------------------------

    The Company has a single reportable segment. The Company operates
    principally in North America and Europe. Net sales by geographic segment
    are determined based on the origin of shipment and therefore include
    export sales.

    
    (US$ millions)
    -------------------------------------------------------------------------
                                   North                      Un-
    4th Qtr 2007                 America      Europe   allocated       Total
    -------------------------------------------------------------------------

    Net sales                   $    149    $    114    $      -    $    263
    EBITDA(1)                        (15)          8          (2)         (9)
    Depreciation                      11           7           -          18
    Property, plant and
     equipment                       696         268           4         968
    Investment in property,
     plant and equipment               6           1           -           7

    4th Qtr 2006
    -------------------------------------------------------------------------

    Net sales                   $    152    $    107    $      -    $    259
    EBITDA(1)                          6          10           6          22
    Depreciation                      15           9           -          24
    Property, plant and
     equipment                       725         279           4       1,008
    Investment in property,
     plant and equipment              32          12           -          44

    12 mos 2007
    -------------------------------------------------------------------------

    Net sales                   $    593    $    511    $      -    $  1,104
    EBITDA(1)                        (22)         81         (17)         42
    Depreciation                      53          34           1          88
    Property, plant and
     equipment                       696         268           4         968
    Investment in property,
     plant and equipment              24          12           -          36

    12 mos 2006
    -------------------------------------------------------------------------

    Net sales                   $    823    $    429    $      -    $  1,252
    EBITDA(1)                        221          35          (9)        247
    Depreciation                      59          34           1          94
    Property, plant and
     equipment                       725         279           4       1,008
    Investment in property,
     plant and equipment             138          22           -         160
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    (1) EBITDA is earnings before interest, income tax and depreciation.
    




For further information:

For further information: Anita Veel, Director, Corporate Affairs, (416)
643-8838, anita.veel@norbord.com


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